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Which affiliate marketing strategy do you think is the most effective? Why?

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CHAPTER 4 M A R K E T I N G ON TH E W E B LEARNING OBJECTIVES • W How firms use product-based and customer-based marketing strategies I About communicating with different market segments L To identify customer relationship characteristics About the customer relationship lifeS cycle How companies advertise on the Web O About e-mail marketing strategies N About technology-enabled customer relationship management , How to create and maintain brands on the Web • How businesses use social media in viral marketing campaigns • About search engine positioning tactics and domain name selection strategies In this chapter, you will learn: • • • • • • • INTRODUCTION J A M I E In September 1997, a new gift shop opened for business on the Web. There were already many gift shops on the Web at that time; however, this store, named 911Gifts.com, carried items that were cho- 5 0 sen specifically to meet the needs of last-minute gift shoppers. Including 911—the emergency tele5 phone number used in most parts of the United States—in the store’s name was intended to convey 1 the impression of crisis-solving urgency. The B company’s two major strengths were its promise of nextU day delivery on all items and its site layout, in which gift selections were organized by holiday rather than by product type. A harried shopper could simply click the Mother’s Day gifts link and view a set of gift choices appropriate for that holiday that were ready for immediate delivery. The site also Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. included a reminder service to help its customers avoid another emergency gift situation on the next holiday. 154 By 1999, the company was doing about $1 million in annual sales. It carried about 500 products, and each of the products was chosen to yield a gross margin of at least 40 percent. 911Gifts.com was successful, but the company’s founders wanted to build wider awareness of their brand. They realized that building a brand would require a substantial investment of funds and skills beyond what they had in the company at that time. Thus, they hired Hilary Billings, who had built the Pottery Barn catalog business at Williams-Sonoma, to create a brand-building strategy and obtain financing to implement that strategy. Billings completely overhauled the 911Gifts.com marketing plan. W I bring in more than $30 million from investors for a rebranding She used the new marketing plan to L and total redesign of the company’s Web site. In October 1999, the new brand was launched as S RedEnvelope, named after an Asian Otradition of enclosing gifts of money in a simple red envelope. N The new brand was intended to convey a sense of elegant simplicity rather than the feeling of panic , and emergency solutions conveyed by the old brand name. J A replaced with different products that focus groups had judged to be more appealing. The new product M line had a higher average gross Imargin than the old line. Billings launched a massive brandE The product line was updated to fit the new image. About 300 products were dropped and awareness campaign that included online advertising, buses in seven major cities painted red and festooned with large red bows, and print advertising in upscale publications. The most important 5 0 launch of a print catalog. RedEnvelope catalogs are mailed to change in advertising strategy was the 5 customers to coincide with major gift-giving holidays and serve as additional reminders. Because 1 RedEnvelope sells a small set of products that are chosen for their visual appeal and for the status B U they are intended to convey, the full-color, lushly illustrated print catalogs are a powerful selling tool. One year later, the results of this extensive makeover and substantial monetary investment were clear. RedEnvelope had tripled its number of customers and had increased sales by more than Chapter 4 Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. 400 percent. The company chose a specific part of the gifts market and targeted its offerings to meet the needs and desires of those customers. The company created a brand, a marketing plan, and a set of advertising and promotion strategies that would expose the company to the largest portion of that 155 market it could afford to reach. The most important point is that RedEnvelope matched its inventory selection, delivery methods, and marketing efforts to each other and to the needs of its customers. Since 2008, RedEnvelope has been part of Provide Commerce, a company that operates online gift businesses such as ProFlowers and Shari’s Berries. The company continues to use print catalogs and a focus on upscale product lines to keep its sales increasing each year. Marketing an online business often requires the use of a combination of marketing techniques that sometimes include tra- W ditional approaches such as print catalogs. I L WEB MARKETING STR SA T E G I E S In this chapter, you will learn how companies O are using the Web in their marketing strategies to advertise their products and services and promote their reputations. N Increasingly, companies are classifying customers into groups and creating targeted messages for each group. The sizes of these , targeted groups can be smaller when companies are using the Web—in some cases, just one customer at a time can be targeted. New research into the behavior of Web site visitors has even suggested ways in which Web sites can respond to visitors who J arrive at a site with different needs at different times. This chapter will also introduce you to some of the ways companies are A making money by selling advertising on their Web sites. M mix to describe the combination of elements Most companies use the term marketing that they use to achieve their goals for selling and promoting their products and services. I When a company decides which elements it will use, it calls that particular marketing mix its marketing strategy. As you learned inE Chapter 3, companies—even those in the same industry—try to create unique brand presences in their markets. A company’s marketing strategy is an important tool for conveying its branding and advertising messages to 5 current and prospective customers. A company’s Web presence is an element of that marketing strategy. 0 5 1 issues of marketing into the four Ps of Most marketing classes organize the essential marketing: product, price, promotion, and Bplace. Product is the physical item or service that a company is selling. Elements such as quality, design, features, characteristics, and even the packaging make up the product.UThese intrinsic characteristics of the product The Four Ps of Marketing are important, but customers’ perceptions of the product, called the product’s brand, can be as important as the actual characteristics of the product. The price element of the marketing mix is the amount the customer pays for the product. In recent years, marketing experts have argued that companies should think of price in a broader sense, that is, the total of all financial costs that the customer pays Marketing on the Web Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. Product Quality Design Features Branding Packaging Customer perception Promotion Advertising Public relations Personal selling Online communications FIGURE 4-1 O N , J A Marketing Strategy M I E Price Value to customer Price of competing products Customer price sensitivity Discounts Differential pricing Place Distribution channels Market coverage Logistics Inventory management © Cengage Learning 156 (including transaction costs) to obtain the product. This total cost is subtracted from the benefits that a customer derives from the product to yield an estimate of the customer value obtained in the transaction. Later in this book, you will learn how the Web can create new opportunities for creative pricing and price negotiations through online auctions, reverse auctions, and group buying strategies. These Web-based opportunities are helping companies find new ways to create increased customer value. Promotion includes any means of spreading the word about the product. It requires decisions about advertising, public relations, personal selling, and overall promotion of the product. On the Internet, possibilities abound for communicating with existing and potential customers. In this chapter, you will learn how organizations use their Web sites, e-mail strategies, and social media as communication tools for promoting their products and services. For years, marketing managers dreamed of a world in which instant deliveries would give all customers exactly what they wanted when they wanted it. The issue of place (also called distribution) is the need to have products or services available in many different locations. The problem of getting the right products to the right places at the best time to sell them has plagued companies since commerce began. Although the Internet does not W solve all of these logistics and distribution problems, it can certainly help. For example, digital products (such as information, news, software, music, video, and e-books) can be I delivered almost instantly through the Internet. Companies that sell products that must be shipped have found that the L Internet gives them much better shipment tracking and inventory control tools than they Shave ever had before. Figure 4-1 depicts the components of the four Ps of marketing and shows their contributions to overall marketing strategy. The four Ps of marketing contribute to marketing strategy 5 0 Product-Based Marketing Strategies 5 In Chapter 3, you learned about the importance of a company’s Web presence and how 1 the brand or other established images the company uses this presence must integrate with in its promotional activities. Most B companies offer a variety of products that appeal to different groups. When creating a marketing strategy, managers must consider both the nature of their products and theUnature of their potential customers. Managers at many companies think of their businesses in terms of the products and services they sell. This product-based structure is a logical way to think of a business because companies spend a great deal of effort, time, and money to design and create those products and services. If you ask managers to describe what their companies are selling, they usually provide you with a detailed list of the physical objects they sell or use Chapter 4 Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. to create a service. When customers are likely to buy items from particular product categories, or are likely to think of their needs in terms of product categories, this type of product-based organization makes sense. Most office supplies stores on the Web believe their customers think of their needs using a product category structure. For example, both the Home Depot and Staples use product categories as a very strong organizing theme in the design of their Web sites. Many other online businesses use a similar product-based marketing strategy. Sears, a company that sold its products through catalogs and later in physical stores for many years before adding online sales, uses a product-based structure on its Web site. Most companies that used print catalogs in the past organized them by product category, and this design theme has carried over into many of their Web sites. Many retailers that began as catalog-based businesses organize their Web sites from an internal viewpoint, that is, according to the way that they arranged their product design and manufacturing processes. If customers arrive at these Web sites looking for a specific type of product, this approach works well. Alternatively, customers who are looking to fulfill a specific need, such as outfitting a new office or choosing a graduation gift, rather than find a specific product, might not find these Web sites as useful. W Many marketing researchers and consultants advise companies to think as if they were their own customers and to design their I Web sites so that customers find them to be enabling experiences that can help customers meet their individual needs. Sometimes this requires the Web site to offer alternativeL shopping paths. For example, an online florist’s Web site could allow customers to specifySan arrangement that includes specific flowers or colors (satisfying customers with a desire for a specific product), yet provide a separate shopping path for customers who want toObuy an arrangement for a specific occasion (birthday, anniversary, Mother’s Day, andNso on). Similarly, toy sites provide users with filtering options so they can select price range, type of toy, recipient age range, cost, and , so on. 157 Customer-Based Marketing Strategies J In Chapter 3, you learned that the Web creates an environment that allows buyers and A sellers to engage in complex communications modes. The communication structures on the Web can become much more complex Mthan those in traditional mass media outlets such as broadcast and print advertising. When a company takes its business to the Web, it I can create a Web site that is flexible enough to meet the needs of many different users. E Instead of thinking of their Web sites as collections of products, companies can build their sites to meet the differing needs of various types of customers. A good first step in building a customer-based marketing strategy is to identify groups 5 of customers who share common characteristics. Creating a Web site that acknowledges those groups and treats each differently can make the site more accessible and useful to 0 each group. This is difficult to do because most organizations think about their Web sites as models of their activities, which they 5 view from an internal perspective. For example, early university Web sites were often organized around the internal elements of the school 1 (such as departments, colleges, and programs) in an implementation of their own internal Bpages include links to separate sections of the perspective. Today, most university home Web site designed for specific stakeholders, U such as current students, prospective students, parents of students, potential donors, and faculty. This construction reflects the external perspective of each different user group that might use the Web site. Marketing on the Web Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. COMMUNICATING WITH DIFFERENT MARKET SEGMENTS 158 Identifying groups of potential customers is just the first step in selling to those customers. An equally important component of any marketing strategy is the selection of communication media to carry the marketing message. In the physical world, companies can convey large parts of their messages by the way they construct buildings and design their floor spaces. For example, banks have traditionally been housed in large, solid-looking buildings that provide passersby an ample view of the main safe and its thick, sturdy door. Banks use these physical manifestations of reliability and strength to communicate an important part of their service offerings— that a customer’s money is safe and secure with the bank. Media selection, or choosing where to market and advertise a company, can be critical for an online firm because it does not have a physical presence. The only contact a potential customer might have with an online firm could be the image it projects through the media and through its Web site. The challenge for online businesses, especially new online businesses, is to convince customers to trust them even though they W do not have a physical presence. I L As you learned in Chapter 3 (see Figure 3-9), the Web provides a communication mode S mass media and personal contact, but it is a very that is an intermediate step between broad step. Using the Web to communicate with potential customers offers many of O the advantages of personal contact selling and many of the cost savings of mass media. N information dissemination modes compare on the Figure 4-2 shows how these three important dimensions of trust and , product (or service) complexity. Trust, Complexity, and Media Choice Product J or Service Complexity Low High 5 The Web 0 5 Trust 1 B Trust in three communication modes U Mass media Low FIGURE 4-2 Personal contact High © Cengage Learning A M I E Although mass media offers the lowest level of trust, many companies continue to use it successfully. The cost of mass media advertising can be spread over the many people in its large audiences. For example, the cost of creating and running a television ad can be millions of dollars, but that ad will be viewed by millions of people. Thus, the cost of Chapter 4 Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. advertising per viewer is very low. Its low cost per viewer makes mass media advertising attractive to many companies. In 2009, Ford Motor Company shifted a significant portion of its advertising budget from traditional car ads that focused on new vehicle features to ads that told stories about how Ford managers are running the company more intelligently than its competitors. Ford’s two major U.S.-based competitors, Chrysler and General Motors, both needed taxpayer bailout money to survive the global economic recession. Ford was able to use mass media advertising to draw a sharp contrast between itself and its competitors in the minds of millions of potential customers. The message was straightforward and could be delivered to all of Ford’s customers (and potential customers) using the same language and images. Thus, mass media advertising was an ideal choice for delivering this message. After years of being barraged by television and radio commercials, many people have developed a resistance to the messages conveyed in mass media. The impact on an audience of the shouted expression “New and improved!” is very low. The overuse of superlatives has caused many people to distrust or ignore much mass media. Television remote controls have mute buttons and make channel surfing easy for a reason. Attempts to re-create mass media advertising on the Web are likely to fail for the same reasons— Wlack content of any specific personal interest many people ignore or resist messages that to them. I Mass media advertising campaigns that are successful often rely on the passive nature L watching television or listening to radio are of the media consumption experience. People usually in a passive and receptive state ofSmind. Thus, advertisers can include messages in mass media advertising that recipients might not consider valid or convincing if they were actively evaluating those statements. TheO messages are accepted by recipients because they are in a nonquestioning and passiveN state of mind. In contrast, Web users are actively engaged in the medium, with hands on the keyboard and mouse, as they view , Web pages. This active state of mind makes Web users far more likely to evaluate critically the advertising messages they see and less likely to accept the content of those messages in the same passive way that television viewers accept the content of television J commercials. A product or service is also an important factor The level of complexity inherent in the in media choice. Products that have few characteristics or that are easy to understand can M be promoted well using mass media. Because mass media is expensive to produce, most I (although there are exceptions, such as companies use it to deliver short messages infomercials). Highly complex products and E services are best promoted through personal contact, which allows the potential customer to ask clarifying questions during the promotional presentation. The Web occupies a wide middle ground 5 and can be used for delivering short but focused messages that promote, but it can also be used to deliver longer and more complex messages. The Web can even be0used to engage the potential customer in a backand-forth dialog similar to that used in personal contact selling. Most important, a 5 properly designed Web site can give potential customers the ability to choose their level of 1 interaction. A company can present a mass media type of message that a site visitor can click to access a more detailed message. B If the visitor still wants more information, the site can offer the opportunity for interactive communication (such as an online chat) with U a customer service representative. Thus, the Web can offer elements of mass media messaging, personal contact interaction, and anything in between. Companies can use the Web to capture some of the benefits of personal contact, yet avoid some of the costs inherent in that approach. One way to do this is to use some of the new communication tools that the Internet provides. For example, people can post 159 Marketing on the Web Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. 160 their thoughts on a Web site and invite others to add commentary. Individuals have used this type of Web site, known as a Web log or blog, as an outlet for expressing their political, religious, and other strongly felt beliefs. Today, many companies use blogs as a communication device. For example, retailers use blogs to give their online stores a personality and provide customers with a reason to visit their Web sites even if they are not shopping. Another way that companies can develop an involvement among their customers is to use social media to create discussions about new products, promotions, and even advertising campaigns. Social media is a general term for Web sites such as Facebook or Google+ and online communication technologies such as Twitter that allow participants to exchange ideas and report news and information updates to each other. You will learn more about social media and mobile device (including smart phones and tablets) applications that many people use with social media in Chapter 6. Blogs and social media provide ways for companies to engage in two-way online communications that more closely resemble the high-trust personal contact mode of communication than the low-trust mass media mode. They also allow companies to achieve these benefits without incurring the high cost of traditional personal contact W techniques. I L Companies’ responses to the decrease in advertising effectiveness were to identify specific S them with specific advertising messages. This portions of their markets and target practice, called market segmentation, O divides the pool of potential customers into groups, or segments. Segments are usually defined in terms of customer characteristics such as N level, and geographic location. Thus, for example, age, gender, marital status, income unmarried men between the ages , of 19 and 25 might be one market segment. Market Segmentation In the early 1990s, firms began identifying smaller and smaller market segments for specific advertising and promotion efforts. This practice of targeting very small market segments is called micromarketing. J However, the low cost per viewer of traditional mass media advertising campaigns becomes much higher when mass media methods are used A to target very small market segments. This cost increase hampered the success of micromarketing strategies. EvenM though micromarketing was an improvement over mass media advertising, it still used the same basic approach and suffered from the weaknesses I of that approach. Marketers have traditionallyEused three categories of variables to identify market segments. One variable is location. Firms divide their customers into groups by where they live or work. In this type of segmentation, called geographic segmentation, 5 companies create different combinations of marketing efforts for each geographical group of customers. The grouping can0be by nation, state (or province), city, or even by neighborhood. Alternatively, companies can develop one marketing strategy for urban 5customers, and yet a third for rural customers. customers, another for suburban The second category uses information about age, gender, family size, income, 1 education, religion, or ethnicity to group customers. This type of segmentation is called B demographic segmentation. Demographic variables are frequently used by traditional marketers because research hasU shown that customers’ need for and usage of products are strongly related to these types of variables. Demographic segmentation also exists on the Web. For example, a number of sites are devoted to women’s issues or directed at specific age groups (such as teenagers) whose members tend to download music and purchase trendy clothing or video games. Often, demographic and geographic segmenting strategies Chapter 4 Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. are combined. For example, an airline might target middle-income families living in Wisconsin and Michigan with midwinter advertising for vacation trips to Florida. In psychographic segmentation, marketers try to group customers by variables such as social class, personality, or their approach to life. For example, an auto company might direct advertising for a sports car to customers who are gregarious and have a high need for achievement. The use of psychographic segmentation has increased dramatically in recent years as marketers attempt to identify characteristic lifestyles and then design advertising to reach people who see themselves as having a particular lifestyle. Companies that advertise on television often create messages designed to reach the likely audiences of various types of programs. These audiences represent one or more market segments. The market segments can be geographic, demographic, psychographic, or a combination of these. Figure 4-3 presents some examples from the television medium that show how companies do this. Type of television program Type of advertising Children’s cartoons Children’s toys and games Daytime dramas Household and laundry goods, pet foods 161 W SnackIfoods and nonprescription sleep aids Late-night talk shows Golf equipment, investment services, and Golf tournaments L life insurance Baseball and football games SnackS foods, beer, autos Documentary films Books,O CDs, educational DVDs Ntailored to program audience FIGURE 4-3 Television advertising messages Children’s television shows are likely, to feature advertising for products that appeal to children. Ads on daytime dramas are directed at people who are home during the day and who thus might be interested in household and laundry care products. These people are J more likely than others to own pets, so they also will see ads for pet foods. Advertisers on late-night talk shows often direct their ads Aat people who might have trouble falling asleep. Advertisers also believe that this late-night audience is receptive to promotions for snack M foods to eat while watching these programs or for nonprescription medications for ailments that might be keeping them up Iso late. Advertisers use sports programming as a vehicle for two different market segments. E Some sports shows, such as golf tournaments or tennis matches, appeal to higher-income viewers. Other sports shows, such as baseball or football game broadcasts, appeal to viewers with more moderate incomes.5As a result, programs that cover golf or tennis are more likely to include ads for investment and insurance products and luxury automobiles than are baseball or football0programs. Also, because viewers of golf tournaments and tennis matches are likely 5 to play the sport, these programs often include ads for game equipment. Baseball or football games rarely include ads for game equipment 1 because few viewers of these games are participants in the sport themselves. Programs that feature documentariesB(such as those on the History Channel or the Discovery Channel) often carry ads for books, book clubs, CDs, and educational DVDs. Uproducts appeal to the intellectual, arts-loving Advertisers have found that these types of audiences of these programs. Companies do much more than just match advertising messages to market segments. They also build a sales environment for their product or service that corresponds to the market segment they are trying to reach. In the physical world, store design and layout Marketing on the Web Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. are often directed at specific market segments. If you walk through a shopping mall, you can observe that colors, displays, lighting, background music, and even the clothes worn by sales clerks vary with the targeted segment. For example, a clothing store for teenagers presents a completely different experience to its customers than a clothing store that sells expensive, conservative attire targeted toward more mature women with larger incomes. 162 Market Segmentation on the Web The Web gives companies an opportunity to present different store environments online. For example, if you visit the home pages of Juicy Couture and Talbots, you will find that both pages are well designed and functional. However, they are each directed to different market segments. The Juicy Couture site is targeted at young, fashion-conscious buyers. The site uses a wide variety of typefaces, bold graphics, and photos of brightly colored products to convey its tone. The emphasis is to make a bold fashion statement and, presumably, become the envy of your friends. In contrast, the Talbots site is rendered in a more subtle, conservative style. The site is designed for older, more established buyers. The messages emphasized are stability and timeless elegance. These images appeal to a market segment of people looking for classics instead of the latest trends. W In the physical world, retail stores have limited floor and display space. These limitations often force physical Istores to decide on one particular message to convey. Exceptions do exist, such as a music L store that has a separate room for classical recordings (with background music that differs from the rest of the store) or a large S department store that can use lighting and display space differently in each department; however, smaller retail stores usually choose the one image that appeals to most of their O customers. On the Web, retailers can provide separate virtual spaces for different market N page includes links to separate sections of its site for segments. For example, Dell’s home home users, small and medium ,businesses, public sector organizations, and large enterprises. Some Web retailers provide the ultimate in targeted marketing—they allow their customers to create their own stores, as you will learn in the next section. J A Dell has done many things well in its online business. Its Web site offers customers a number of different ways to do M business with the company. Its U.S. home page includes links for each major group of customers it has identified, including home, small business, I medium and large business, government, education, and health care. Once the site visitor E specific products and product categories are available has selected a customer category, Offering Customers a Choice on the Web as links. Dell Premier accounts give users a high level of customer-based market segmentation. 5 In these accounts, Dell offers each customer its own Dell Web site. Dell can customize a company’s Premier account pages 0 to show product selections for which price and terms have already been negotiated. Dell even allows individual employees of its customers to 5 create their own personalized pages within their companies’ Premier pages. This highly customized approach to offering1products and services that match the needs of a particular customer is called one-to-one marketing. The Internet gives marketers the best B opportunity for highly customized interactions with customers that they have had since U the heyday of the door-to-door salesperson in the 1940s and 1950s. Chapter 4 Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. BEYOND MARKET SEGMENTATION: CUSTOMER BEHAVIOR AND RELATIONSHIP INTENSITY In the previous sections, you learned how companies can target as market segments groups of customers that share common characteristics. You also learned how one-to-one marketing gives companies a chance to create Web experiences that are unique to each individual customer. The next step—beyond market segmentation, even beyond oneto-one marketing—is when companies use the Web to target specific customers in different ways at different times. 163 Segmentation Using Customer Behavior In the physical world, businesses can sometimes create different experiences for customers in response to their needs. For example, a company might decide that its mission is to sell prepared meals to hungry customers. A given potential customer responds to hunger in different ways at different times. If a person is hungry in the morning, but late for work, that person might drive through a fast-food restaurant or grab W a quick cup of coffee at the train station. Lunch might be a sandwich ordered and delivered to the office, or it could requireI a nice restaurant if a client needs to be entertained. Dinner could be at a restaurant L with friends, take-out food from a neighborhood Chinese restaurant, or a delivered pizza. S The point is that the same person requires different combinations of products and services depending on the occasion. In general, O the creation of separate experiences for customers based on their behavior is called behavioral segmentation. When based on N things that happen at a specific time or occasion, behavioral segmentation is sometimes called occasion segmentation. , Usually, businesses that operate in the physical world can meet only one or a few of a customer’s differing behavioral needs. For example, the Chinese restaurant mentioned earlier might offer dining room service and J take-out service, but it probably would not offer a drive-through window or a morning coffee kiosk. Very few restaurants are able to A offer everything from fast food through a five-course dinner. In the online world, it is M meets the needs of visitors who arrive in much easier to design a single Web site that different behavioral modes. Thus, a Web site design can include elements that appeal I to different behavioral segments. Marketing researchers study how andEwhy people prefer different combinations of products, services, and Web site features and how these preferences are affected by their modes of interaction with the site. Market researchers know that people want Web sites 5 Remember that a particular person might that offer a range of interaction possibilities. visit a particular Web site at different times 0 with different needs and will want an interaction that meets those needs on each visit. Customizing visitor experiences to match the site usage behavior patterns of5each visitor or type of visitor is called usagebased market segmentation. Researchers1have identified common patterns of online behavior and grouped patterns into categories. One set of categories that marketers use B today includes browsers, buyers, and shoppers. U Browsers Some visitors to a company’s Web site are just surfing or browsing. Web sites intended to appeal to potential customers in this mode must offer them something that piques their interest. The site should include words that are likely to jog the memories of visitors and remind them of something they want to buy on the site. Marketing on the Web Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. 164 These keywords are often called trigger words because they prompt a visitor to stay and investigate the products or services offered on the site. Links to explanations about the site or instructions for using the site can be particularly helpful to this type of customer. A site should include extra content related to the product or service the site sells. For example, a Web site that sells camping gear might offer reviews of popular camping destinations with photos and online maps. Such content can keep a visitor who is in browser mode interested long enough to stay at the site and develop a favorable impression of the company. Once visitors have developed this favorable impression, they are more likely to buy on this visit or bookmark the site for a return visit. Buyers Visitors who arrive in buyer mode are ready to make a purchase right away. The best thing a site can offer a buyer is a direct route into the purchase transaction. For visitors who first choose a product from a printed catalog, many Web sites include a text box on their home pages that allows visitors to enter the catalog item number. This places that item in the site’s shopping cart and takes the buyer directly to the shopping cart page. A shopping cart is the part of a Web W site that keeps track of selected items for purchase and automates the purchasing process. I The shopping cart page should offer a link that takes the visitor back into the L primary goal is to get the buyer to the shopping cart shopping area of the site, but the as quickly as possible, even if the buyer is at the site for the first time. The shopping S cart should allow the buyer to create an account and log in after placing the item into O in the way of customers who want to buy, the site the cart. To avoid placing barriers should not require visitors to logNin until they near the end of the shopping cart procedure. You will learn more about shopping carts in Chapter 9. , Perhaps the ultimate in shopping cart convenience is the 1-Click feature offered by Amazon.com, which allows customers to purchase an item with a single click. Any items that a customer purchases using the 1-Click feature within a 90-minute time period are J aggregated into one shipment. Amazon.com has a patent on the 1-Click feature. You will learn more about such businessA process patents and other legal issues in Chapter 7. M I Some customers arrive at a Web site knowing that it offers items they are interested in E to buy, but they are looking for more information buying. These visitors are motivated Shoppers before they make a purchase decision. For the visitor who is in shopper mode, a site should offer comparison tools, product reviews, and lists of features. Sites such as 5 Crutchfield and Best Buy allow customers to specify the level of detail presented for each product, sort products by 0 brand, or price, and compare products with each other side by side. 5 visit a Web site one day as a browser and then return Remember that a person might later as a shopper or a buyer. People 1 do not retain behavioral categories from one visit to the next—even for the same Web site. Alternative Models B U Although many companies work with these three visitor categories, other researchers are exploring alternative models. Much of Web site visitor behavior is not yet well understood. One study conducted by major consulting firm McKinsey & Company examined the Chapter 4 Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. online behavior of 50,000 active Internet users and identified six different groups. Following are the six behavior-based categories and their characteristic traits: • • • • • • Simplifiers are users who like convenience. They are attracted by sites that make doing business easier, faster, or otherwise more efficient than is possible in the physical world. Surfers use the Web to find information, explore new ideas, and shop. They like to be entertained, and they spend far more time on the Web than other people. To attract surfers, sites must offer a wide variety of content that is attractive, well displayed, and constantly updated. Bargainers are in search of a good deal. Although they make up less than 10 percent of the online population, they make up more than half of all visitors to the eBay auction site. They enjoy searching for the best price or shipping terms and are willing to visit many sites to do that. Connectors use the Web to stay in touch with other people. They are intensive users of chat rooms, instant messaging services, social networking sites, electronic greeting card sites, and Web-based e-mail. Connectors tend to be new to the Web, less likely than W other people to purchase on the Web, and actively trying to learn what the Web has to offer them. I sites over and over again. They use the Web to Routiners return to the same obtain news, stock quotes, and L other financial information. Routiners like the comfort of working with a user interface that they know well. S Sportsters are similar to routiners, but they tend to spend time on sports and entertainment sites rather than news and financial information sites. Because O they view the Web as an entertainment vehicle, sportsters are attracted by N sites that are interactive and attractive. 165 , Other research studies have identified similar sets of characteristics and categories. Companies in different industries or lines of business identify somewhat different sets of characteristics and group their Web site visitors using different names. The challenge for J Web businesses is to identify which groups are visiting their sites and formulate ways of A example, some of these groups (such as generating revenue from each segment. For simplifiers and bargainers) are ready to buy M and would be interested in seeing specific product or service offerings. Other groups (such as surfers, routiners, and sportsters) I advertising messages. As more researchers would be good targets for specific types of study Web site visitor behavior, perhaps E the industry will learn how to recognize the various modes in which visitors arrive and then channel them into the appropriate sections of the site. Until then, many Web sites use Dell’s approach, in which visitors are asked to identify themselves as belonging5to a particular category of customer when they enter the sites. 0 Customer Relationship Intensity and 5 Life-Cycle Segmentation One goal of marketing is to create strong1relationships between a company and its customers. The reason that one-to-one marketing and usage-based segmentation are so B valuable is that they help to strengthen companies’ relationships with their customers. Good customer experiences can help create U an intense feeling of loyalty toward the company and its products or services. Researchers have identified several stages of loyalty as customer relationships develop over time. A five-stage model of customer loyalty that is typical of these models appears in Figure 4-4. Marketing on the Web Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. Awareness Exploration Familiarity Commitment Separation Time FIGURE 4-4 © Cengage Learning Level of intensity 166 Five stages of customer loyalty This model shows the increase in intensity of the relationship as the customer moves through the first four stages: awareness, exploration, familiarity, and commitment. In the fifth stage, separation, a decline occurs and the relationship terminates. Not all customers W go through the full five stages; some stop at a stage and continue the relationship at that I relationship at that point. Some customers in a level of intensity or terminate the particular stage might have contact L with the company online while other customers in the same stage encounter the company offline. Companies should strive for a consistent S life-cycle stage. That is, customers should experience customer experience at a particular the same level and quality of service O whether they encounter the company online or offline. Online and offline customer contact points are often called touchpoints, and the N quality of service at all touchpoints is called goal of providing similar levels and touchpoint consistency. , As the figure shows, changes in the nature of the relationship do not occur suddenly as a customer moves from one stage to the next. Within each stage, the level of intensity changes gradually as the customer J moves through that stage. The characteristics of the five stages are outlined in the next sections. A Awareness M Customers who recognize the name I of the company or one of its products are in the awareness stage of customer loyalty. They know that the company or product exists, but E the company. Advertising a brand or a company name have not had any interaction with is a common way for companies to achieve this level of relationship with potential customers. 5 Exploration 0 In the exploration stage, potential 5 customers learn more about the company or its products. The potential customer might visit the company’s Web site to learn more, and 1 the two parties will often communicate by telephone or e-mail. A large amount of information interchange can occur between the parties at this stage. B U Familiarity Customers who have completed several transactions and are aware of the company’s policies regarding returns, credits, and pricing flexibility are in the familiarity stage of their relationship with the company. In this stage, they are as likely to shop and buy from competitors as they are from the company. Chapter 4 Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. Commitment After experiencing a considerable number of highly satisfactory encounters with a company, some customers develop a fierce loyalty or strong preference for the products or brands of that company. These customers have reached the commitment stage and are often willing to tell others about how happy they are with their interactions. To lure customers from the familiarity stage to the commitment stage, companies sometimes make concessions on prices or terms. Usually, the value of the strong relationship is worth more to the company than the costs of these concessions. 167 Separation Over time, the conditions that made the relationship valuable might change. The customer might be severely disappointed by changes in the level of service (either as provided by the company or as perceived by the customer) or product quality. The company can also evaluate the relationship and conclude that the loyal, committed customer is costing too much to maintain. As the intensity of the relationship fades, the W parties enter a separation stage. An important goal of any marketing Istrategy should be to move customers into the commitment stage as rapidly as possible and keep them there as long as possible. Companies want to see customers move L into the separation stage only if they are costing more to serve than they are worth. S O N Analyzing how customers’ behavior changes as they move through the five stages can , with the company and its products in each yield information about how they interact Life-Cycle Segmentation stage. The five stages are sometimes called the customer life cycle, and using these stages to create groups of customers that are in each stage is called life-cycle segmentation. J research into market segmentation and how Two companies that undertake continuing companies can use segment information A to develop better relationships with their customers are Claritas and Donnelley Marketing. M marketing databases, named PRIZM, in the Claritas created one of the first segment early 1970s. Claritas built PRIZM to take Iadvantage of people’s tendency to live near other people with similar tastes and preferences. Thus, PRIZM identifies the demographic E characteristics of people by neighborhood. Claritas developed a number of other products that offer marketers databases with specific demographic, financial, and psychographic characteristics. Donnelley Marketing offers similar products, such as its Buyer Behavior 5 Indicator and Affluence Models databases. Both Donnelley and Claritas extended their 0 to help firms sell online. You can learn more research from traditional direct marketing about these companies and their products by following their links in the Web Links for 5 this chapter. 1 B Acquisition, Conversion, and Retention of Customers One goal of the strategies and tactics youUwill learn about in the rest of this chapter is to attract new visitors to a Web site. The benefits of acquiring new visitors are different for Web businesses with different revenue models. For example, an advertising-supported site Marketing on the Web Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. 168 is interested in attracting as many visitors as possible to the site and then keeping those visitors at the site as long as possible. That way, the site can display more advertising messages to more visitors, which is how the site earns a profit. For sites that operate a Web catalog, charge a fee for services, or are supported by subscriptions, attracting visitors to the site is only the first step in the process of turning those visitors into customers. The total amount of money that a site spends, on average, to draw one visitor to the site is called the acquisition cost. The second step that a Web business wants to take is to convert the first-time visitor into a customer. This is called a conversion. For advertising-supported sites, the conversion is usually considered to happen when the visitor registers at the site, or, in some cases, when a registered visitor returns to a site several times. For sites with other revenue models, the conversion occurs when the site visitor buys a good or service or subscribes to the site’s content. The total amount of money that a site spends, on average, to induce one visitor to make a purchase, sign up for a subscription, or (on an advertising-supported site) register, is called the conversion cost. Most managers use a cumulative definition for conversion cost; that is, conversion cost includes acquisition cost. W conversion cost is greater than the profit earned on the For many Web businesses, the average sale (or the average firstI sale). In such cases, the Web business must induce the customer to return to the site and buy again (or renew the subscription, or view more L to the site one or more times after making their first advertising). Customers who return purchases are called retained customers. Different businesses use different measures for S determining when a customer is a retained customer. Some companies consider a O customer retained if he or she returns just once and purchases again. Others use some number of subsequent purchases Nor some number of subsequent purchases within a specific time frame. The costs of inducing customers to return to a Web site and buy , again are called retention costs. Companies have found that measuring acquisition, conversion, and retention costs is important because it gives them an idea of which advertising and promotion strategies are J successful. These measurements are more precise than classifying customers into the five stages of loyalty in the customerAlife-cycle model. It is much easier to determine, for example, whether a customer has M been converted or retained than it is to determine whether that customer is in the familiarity stage or the commitment stage. A company that is evaluating its promotion Icampaign can measure the conversion costs and compare them to the profit generated byE the average first-time sale. Most companies are very interested in retaining customers, because the cost of acquiring a new customer is between 3 and 15 times (depending on the type of business) the cost of retaining an existing customer. 5 In the rest of this chapter, you will learn some specific techniques that can be 0 elements of successful Web marketing strategies. Remember that each of these techniques makes sense only when 5 used in concert with another. Not all techniques work well in all situations. For example, in the chapter’s opening case, RedEnvelope 1 found that a print catalog could be an integral part of promoting its online sales. RedEnvelope’s success does notBmean that printing catalogs is a good idea for all Web businesses (see the Kozmo Learning from Failures feature). It is only a good idea if it U provides customers with recognizable value and augments the rest of the company’s marketing strategy. Chapter 4 Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. LEARNING FROM FAILURES Kozmo Throughout New York City, people in their homes late at night crave entertainment and snack foods. Kozmo was launched in 1998 to meet the needs of those New Yorkers. With its orange-jacketed delivery people riding bicycles or motor scooters, Kozmo promised delivery of most items within an hour of ordering. Kozmo did not offer as wide a range of items as most convenience stores, so its main competitive advantage was its delivery service. Kozmo attempted to become profitable by adding high-margin items, such as DVD players and Sony PlayStations, and expanding its delivery areas to include higherincome neighborhoods. In addition to Manhattan, Kozmo operated for a short time in Houston and San Diego. In these cities, the higher average distances between deliveries made it even more difficult to cover costs. Despite its best efforts, Kozmo was unable to create an image that was much different from that of a convenience store on wheels. Kozmo found it difficult to convince customers that delivered snack food items and videos were significantly more valuable than snack food items and videos on the shelves of nearby convenience stores. Most of Kozmo’s product line consisted of items W for which most people were accustomed to paying low prices. I closing operations, Kozmo announced a marIn March 2001, just one month before keting plan that included spending $2.5 L million to print and circulate 400,000 catalogs. The plan was a last-ditch attempt to increase brand awareness, gain new customers, and S connection to use Kozmo’s phone order convince people who did not have an Internet service. Unlike RedEnvelope, however, the Kozmo catalog was not a part of an integrated O business plan and did not provide the same kind of added value that RedEnvelope’s catalog provides—a bag of potato chips does Nnot gain much appeal by appearing in a fullcolor catalog photo. , is that using one element from a marketing The lesson from Kozmo’s experience strategy that worked for one company is no guarantee that it will work for every company. Marketing techniques are effective only when implemented as part of an J products and gives customers a compelling integrated strategy that fits the company’s reason to buy. A 169 M I Customer Acquisition, Conversion, and Retention: The Funnel Model Marketing managers need to have a goodE sense of how their companies acquire and retain customers. They often must evaluate competing marketing strategies to determine which of the strategies is the most effective at attracting and retaining customers. The funnel 5 model of customer acquisition, conversion, and retention is used as a conceptual tool to understand the overall nature of a marketing 0 strategy, but it also provides a clear structure for evaluating specific strategy elements. 5 The funnel model is very similar to the customer life-cycle model you learned about 1 model is less abstract and does a better job of earlier in this chapter; however, the funnel showing the effectiveness of two or more specific strategies. The funnel is a good analogy B for the operation of a marketing strategy because almost every marketing strategy starts U fewer and fewer of those prospects into with a large number of prospects and converts serious prospects, customers, and finally, loyal customers. One example of a funnel model appears in Figure 4-5. Marketing on the Web Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. Needs identification Search for and gather information about alternative products or services Evaluate alternatives and make selections Purchase Conversion of shoppers into loyal supporters of product, service, and brand 900 Web site 500 Web site 80 purchasers W visitors become shoppers become loyal, shoppers complete repeat customers I their purchases L FIGURE 4-5 Funnel model of customer acquisition, conversion, and retention S In this funnel model of the O steps that potential customers take as they become loyal, the repeat customers are on the right side of the figure. The top of the figure explains the increasing level of N commitment that occurs in each step. Using market research and past history as a guide, the marketing manager develops the numbers that , 500,000 ads are shown on Web pages 10,000 ad viewers become Web site visitors © Cengage Learning 170 show the effectiveness of the planned strategy. The wider the right end of the funnel, the better the strategy; that is, the more prospects are converted into loyal customers. The funnel model can be used in planning marketing strategies by comparing the projected J results shown in the diagram with the results for alternative strategies shown in separate A diagrams. The funnel model can also be used to show results that can then be compared with the costs of running the marketing campaign. Either way, the model gives marketing M managers a tool for conceptualizing and evaluating alternative strategies. I A D V E R T I S I N G OE N THE WEB Advertising is all about communication. The communication might be between a company 5 customers, or even former customers that the and its current customers, potential company would like to regain. To 0 be effective, firms should send different messages to each of these audiences. 5 model shown in Figure 4-4 (in the previous section) The five-stage customer loyalty can be helpful in creating the messages to convey to each of these audiences. In the 1 awareness stage, the advertising message should inform. The message could describe a B existing products, or describe specific improvements to new product, suggest new uses for a product. Audiences in the exploration stage should receive messages that explain how a U product or service works and encourage switching to that brand. In the familiarity stage, the advertising message should be persuasive—convincing customers to purchase specific products or request that a salesperson call. Customers in the commitment stage should be sent reminder messages. These ads should reinforce customers’ good feelings about the Chapter 4 Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. brand and remind them to buy products or services. Companies generally do not target ads at customers who are in the separation stage. Most companies that launch electronic commerce initiatives already have advertising programs in place. Online advertising should always be coordinated with existing advertising efforts. For example, print ads should include the company’s URL. Banner ads are the dominant advertising format in use on the Web. Other online ad formats include pop-up ads, pop-behind ads, interstitial ads, and active ads. 171 Banner Ads Most advertising on the Web uses banner ads. A banner ad is a small rectangular object on a Web page that displays a stationary or moving graphic and includes a hyperlink to the advertiser’s Web site. Banner ads are versatile advertising vehicles—their graphic images can help increase awareness, and users can click them to open the advertiser’s Web site and learn more about the product. Thus, banner ads can serve both informative and persuasive functions. Early banner ads used a simple graphic, usually in GIF format, that loaded with the Web page and remained on the page until the user moved to another page or closed W the browser. Today, a variety of animated GIFs and rich media objects created using I attention-grabbing banner ads. These ads can Shockwave, Java, or Flash are used to make be rotated so that each time the Web page L is loaded into a browser, the ad changes. Although Web sites can create banner ads in any dimensions, advertisers decided S it would be easier to standardize the sizes. early in the life of electronic commerce that The standard banner sizes that most WebOsites have voluntarily agreed to use are called interactive marketing unit (IMU) ad formats. The Interactive Advertising Bureau (IAB) is a not-for-profit organization that promotes N the use of Internet advertising and encourages effective Internet advertising. The IAB has , established voluntary standards for IMUs. As the Web grew, so did the creativity of Web advertisers. They were using an increasing number of IMU ad formats including pop-up ads, buttons, and ads that filled entire page borders. By 2003, advertisers were usingJmore than 15 different IMU ad formats and the IAB decided to encourage its members to agree to use only four standard formats. A These formats are now called the universal ad package (UAP) and are the most common formats used on the Web today.M Many advertisers use these four standard formats because they know that almost every Web site will be able to display their ads in I those formats properly. The UAP formats (and their IAB specifications) include the E following: 1. 2. 3. 4. Medium rectangle (300 × 250 pixels) Rectangle (180 × 150 pixels) 5 Leaderboard (728 × 90 pixels) 0 Wide skyscraper (160 × 600 pixels) 5 A leaderboard ad is a banner ad that is designed to span the top or bottom of a Web page. A skyscraper ad is a banner ad 1 that is designed to be placed on the side of a Web page and remain visible as the user scrolls down through the page. You can learn B more about banner ads, including examples of the latest IAB-approved sizes, by following U the Web Links to the IAB Web site. Most advertising agencies that work with online clients can create banner ads as part of their services. Web site design firms can also create banner ads. Charges for creating banner ads range from about $100 to more than $5000, depending on the complexity of the ad. Companies can make their own banner ads by using a graphics program or the tools provided by some Web sites. AdDesigner.com is an advertising-supported Web site Marketing on the Web Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. that lets visitors design their own banner ads and download them for free. AdReady offers free “do-it-yourself” ad-creation service alongside its professional creative services. Banner Ad Placement 172 Companies have three different ways to arrange for other Web sites to display their banner ads. The first is to use a banner exchange network. A banner exchange network coordinates ad sharing so that other sites run one company’s ad while that company’s site runs other exchange members’ ads. Usually, the exchange requires each member site to accept two ads on its site for every one of its ads that appears on another member’s site. The exchange then makes its profit by selling the extra ad space to other businesses. Companies in the banner exchange business include HitExchange and Voltrank. Because banner exchanges are free, many smaller online businesses use them; however, it is often difficult to find a group of other Web sites that have formed an exchange or that belong to an exchange that are not direct competitors. This limitation prevents many businesses from using banner exchange networks. The second way that businesses can place their banner advertising is to find Web sites that appeal to one of the company’s market segments and then pay those sites to W carry the ads. This can take considerable time and effort. Smaller sites might not have an established pricing policy for advertising. Larger sites usually have high standard rates I that they discount for larger customers. Smaller customers generally pay the standard L rates. A company can hire an advertising agency to negotiate lower rates and help with S ad placement. A full-service advertising agency can help design the ads, create the banners, and identify appropriate Web sites on which to display them. Agencies that do a O lot of Internet work can often negotiate lower advertising rates with sites because the N budgets and buy large blocks of advertising space at agencies can consolidate their clients’ one time. , A third way to place banner advertising is to use a banner advertising network. A banner advertising network acts as a broker between advertisers and Web sites that carry ads. The larger banner advertising networks, such as DoubleClick and ValueClick, J offer many of the same services as comprehensive ad agencies and often broker space A as Yahoo!) that have high traffic rates and are, thus, primarily on larger Web sites (such more expensive. The smaller firms, M on the other hand, often sell only leftover discounted space. I New Strategies for Banner Ads E When banner ads first appeared on the Web in the mid-1990s, they were a novelty for Web surfers. As users saw more ads, however, the ads lost their ability to attract attention. Click-through rates, which had 5 been as high as 2 percent when banner ads were first introduced, have steadily dropped 0 and now range from .3 percent to .5 percent, depending on the site’s content. Although some recent research suggests that Web site visitors see 5 that they do not click, advertisers are reluctant to pay and are influenced by banner ads for ads that do not produce directly 1 measurable results. To battle the decrease in click-through rates, banner ad designers first introduced B animated GIFs with moving elements in the hopes that they might be more attractive to the user’s eye than stationary graphics. When animated GIFs failed to halt the decline, U designers created ads that included rich media effects, such as movie clips. They also added interactive effects by writing Java programs that could respond to a user’s click with some action (other than simply loading the advertiser’s page into the browser). Some of these interactive ads even act like miniature video games. Chapter 4 Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. Some designers created banner ads that appear to be dialog boxes in the hope that confused users would click them. Several examples of this type of banner ad are shown in Figure 4-6. These ads are designed to induce users to click a button in the ad to fix the “error,” but the banners actually link to Web sites or begin installing a program on the user’s computer. 173 FIGURE 4-6 © Cengage Learning W I L S O N , Disguised banner ads J A An ad format that is deceptively simple but very effective is the text ad. A text ad is a short promotional message that does notM use any graphic elements and is usually placed along the top or right side of a Web page.I Google was the first company to use text ads successfully on the Web. Google places text ads on its search results pages. When you visit E Google and use it to search for information, the page that provides the links relevant to Text Ads your search query includes short text ads for products or services related to your search query. Google found that these ads were less obtrusive than banner ads and that they 5 were very effective because they reached people who were interested in learning more 0 query they had entered) related to the about something (as reflected in the search advertisers’ products or services. 5 Text ads were so unobtrusive that Google was criticized when it first included them 1 might not be able to distinguish the paid on its pages. Observers noted that site visitors ads from the search results. In response B to this criticism, Google and most other search sites that use text ads now clearly label the ads to prevent users from being confused. U The use of text ads was one of the innovations that helped Google become one of the leading search sites on the Web. It gave Google an effective way to earn money while providing users with a useful search experience. A number of sites that provide information use text ads in another way by turning some of the text in the stories they display into hyperlinks that lead to advertisers’ sites. This type of advertising is called an inline text ad. Newspaper, magazine, and other Marketing on the Web Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. 174 sites that users visit to learn more about a topic can use this technique. For example, a newspaper site might have a story about local banks. Banks that are mentioned in the story could have their names presented in the story as links to ads for the banks’ services. The newspaper would charge the advertising banks a fee for placing the link in the story. Another way information sites use text ads is to include them in the middle of the running text of a story as a separate, blocked-off paragraph. These paragraphs are often labeled “sponsored links” or something similar so that readers understand that they are looking at a link to an ad. This use of inline text ads is common in online magazines devoted to specific industries and in general information sites. Other Web Ad Formats The steady decline in the effectiveness of banner ads has prompted advertisers to explore other formats for Web ads. One of these formats is the pop-up ad. A pop-up ad is an ad that appears in its own window when the user opens or closes a Web page. The window in which the ad appears does not include the usual browser controls. The only way to dismiss the ad is to click the small close button in the upper-right corner of the window’s frame. Many users find pop-up ads extremely annoying. A particularly W irritating variation on the pop-up ad technique occurs at Web sites that open more than I the site or closes the browser. If the user does not act one pop-up ad when a user leaves quickly enough, the browser spawns L multiple windows and can even crash the computer. Scalled the pop-behind ad. A pop-behind ad is a pop-up Another type of pop-up ad is ad that is followed very quickly O by a command that returns the focus to the original browser window. The result is an ad that is parked behind the user’s browser, waiting to N appear when the browser is closed. Despite user objections to pop-up ads (in all their variations), an increasing number , of Web sites are using them as a way of delivering a larger advertising image in a more forceful way. Some users have responded by using ad-blocking software that prevents banner ads and pop-up ads fromJloading. Most Web browsers can be configured not to display many of these ads; however, any site that uses methods for navigation that are A similar to those used to deliver ads (such as pop-up information windows) cannot operate as intended in the reconfigured M browser. Some researchers have found that pop-up ads not only annoy users, they actually create lasting bad will among users toward the I company whose products are depicted in the ads. Despite these findings, many advertisers E for drawing customers to their sites and continue to find pop-up ads to be effective tools use them. Another intrusive ad format is the interstitial ad. When a user clicks a link to load a page, the interstitial ad opens in5its own browser window, instead of the page that the user intended to load (the general 0 meaning of the word “interstitial” is something that comes between two other things). Many interstitial ads close automatically, allowing the 5 browser window. Other interstitials require the intended page to open in the existing user to click a button before they 1 close. Because they open in a full-size browser window, interstitial ads offer the advertiser even more space than the pop-up ad format. These B page that the user was trying to see. Many users find ads also completely cover the Web interstitials even more annoyingUthan pop-up ads because they are larger and a more forceful interruption of the Web-browsing experience. Rich media ads, also called active ads, are another ad format. These ads generate graphical activity that “floats” over the Web page itself instead of opening in a separate window. These ads always contain moving graphics and usually include audio and video elements. One of the first rich media ads featured the figure of a little man who walked Chapter 4 Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. into the displayed Web page, unrolled a movie poster, and then pasted the poster onto the Web page (covering up part of the Web page content—content that a user might have been reading!). After about 10 seconds, the figure walked off the page and the poster disappeared. While it was open on the page, the poster was an active link to the movie’s Web site. Another early rich media ad showed a Ford Explorer driving into the Web page. The Web page appeared to shake with the vibrations of the Explorer as it drove through. Rich media ads are certainly attention grabbers and are even more intrusive than pop-ups or interstitials because they occur on the Web page itself and offer users no obvious way to dismiss them. Rich media ads are also used on Web sites that deliver video. For example, a Web site that provides television shows or video news updates will often include a rich media ad at the beginning of the video clip. A visitor opens the video and must view a 15- or 30-second ad before the content begins to play. 175 Mobile Device Advertising Wthat are connected to the Internet, such as In recent years, the use of mobile devices smart phones and tablets, has grown tremendously. The programs that run on these I devices, called mobile apps (which is a short form of the term “mobile software L such as calendar, contact management, Web applications”) perform a variety of functions browsing, e-mail, and entertainment. A number of mobile apps provide connectivity to S specific Web sites or groups of Web sites. You will learn more about the business of selling O mobile apps in Chapter 6. Some of the sellers of mobile apps include an advertising element in their revenue N models. These apps include mobile ads that display messages from advertisers (other than the seller of the app). For example,, the mobile app of The New York Times has a small bar at the bottom of the screen that displays ads. Some productivity and game software also includes advertising that appears on a part of the screen or as a separate J to the productivity tool or game. The screen that must be clicked through to get advertising space on mobile apps is soldA in the same way that banner advertising on Web sites is sold. M I Site Sponsorships E Some Web sites offer advertisers the opportunity to sponsor all or parts of their sites. These site sponsorships give advertisers a chance to promote their products, services, or brands in a more subtle way than by placing banner or pop-up ads on the sites 5 (although some sponsorship packages include a certain number of banner and pop-up ads). 0 Companies that buy Web site sponsorships have goals that are similar to those of 5 sporting event sponsors or television program sponsors; that is, they want to tie 1 or a set of information. The idea is that the the company or product name to an event quality of the event or information set will carry over to the company’s products, B services, or brands. In general, sponsorships are used to build brand images and U immediate sales. A site sponsorship develop reputations rather than to generate can be exclusive, which prevents any other companies from sponsoring the site, or it can be shared, which means that other companies can be co-sponsors of the site. In general, an exclusive site sponsorship will cost more than a shared site sponsorship. Marketing on the Web Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. 176 In some cases, the sponsor is given the right to create content for the site or to weave its advertising message into the site’s content. This practice can raise ethical concerns if not done carefully. Sites that offer content spots to sponsors should always identify the content as an advertisement or as provided by the sponsor. Unfortunately, many sites do not use clear labels for sponsored content. This can confuse site visitors who are unable to distinguish between editorial content and advertising. Sites that offer medical information, for example, should be especially careful to distinguish between information that is generated by the site’s reporters or editorial staff and information that is provided by pharmaceutical companies or medical device manufacturers. Online Advertising Cost and Effectiveness As more companies rely on their Web sites to make a favorable impression on potential customers, the issue of measuring Web site effectiveness has become important. Mass media efforts are measured by estimates of audience size, circulation, or number of addressees. When a company purchases mass media advertising, it pays a dollar amount for every thousand people in the estimated audience. This pricing metric is called cost per thousand (CPM; the “M” is from the Roman numeral for “thousand”). W Measuring Web audiences is more complicated because of the Web’s interactivity and because the value of a visitor toI an advertiser depends on how much information the site gathers from the visitor (for example, L name, address, e-mail address, telephone number, and other demographic data). Because each visitor voluntarily chooses whether to provide S are not of equal value. Internet advertisers have these bits of information, all visitors developed some Web-specific metrics O for site activity, but these are not generally accepted and are currently the subject of considerable debate. Nrequests a page from the Web site. Further page loads A visit occurs when a visitor from the same site are counted ,as part of the visit for a specified period of time. This period of time is chosen by the administrators of the site and depends on the type of site. A site that features stock quotes might use a short time period because visitors may load the page to check the price of one J stock and reload the page 15 minutes later to check another stock’s price. A museum site would expect a visitor to load multiple pages over a A longer time period during a visit and would use a longer visit time window. The first time that a particular visitor loads a M Web site page is called a trial visit; subsequent page loads are called repeat visits. Each page loaded by a visitor counts as a page view. If the page I contains an ad, the page load is called an ad view. E ads that continue to load and reload as long as the Some Web pages have banner page is open in the visitor’s Web browser. Each time the banner ad loads is an impression. If the visitor clicks the banner ad to open the advertiser’s page, that action 5 Banner ads are often sold on a CPM basis where the is called a click or click-through. “thousand” is 1000 impressions. 0 Rates vary greatly and depend on how much demographic information the Web site obtains about its visitors and what kinds of 5 rates range between $1 and $50 CPM. Exclusive site visitors the site attracts, but most sponsorships can be more expensive, sometimes hitting $100 CPM. And context-related 1 text ads on sites with demographics that are very good for the particular targeted text ad B can reach $200 CPM. Rates have varied throughout U the history of the Web. As the online advertising market grew, rates slowly climbed, peaking in the late 1990s, when they ranged from $5 to $100. After that time, they gradually drifted downward to their current levels. Figure 4-7 shows a comparison of CPM rates for banner ads and other Web advertising media to CPM rates for advertising placed in traditional media outlets. Chapter 4 Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. Medium Description Audience size Cost per thousand (CPM) $5–$30 Network television 30-second commercial 10 million–50 million Local television station 30-second commercial 50,000–2 million $3–$25 Cable television 30-second commercial 100,000–500,000 $8–$20 Radio 60-second commercial 50,000–2 million $1–$18 Major metro newspaper Full-page ad 100,000–600,000 $80–$130 Regional edition of a national magazine Full-page ad 50,000–900,000 $40–$80 Local magazine Full-page ad 3000–80,000 $100–$140 Direct mail coupon pack Mailed in letter-sized envelope $15–$20 Billboard Highway billboard World Wide Web Banner ad World Wide Web Rich media ad World Wide Web Text ad World Wide Web Site sponsorship (exclusive) W10,000–200,000 I 100,000–3 million L 10,000–50 million S O10,000–50 million N10,000–50 million , 10,000–50 million World Wide Web Site sponsorship (shared) 10,000–50 million $20–$50 J A10,000–10 million Single mailing Targeted e-mail M Mobile ads App-embedded 10,000–5 million I E media FIGURE 4-7 CPM rates for advertising in various 177 $2–$5 $1–$50 $18–$50 $1–$200 $60–$100 $5–$15 $10–$15 One of the most difficult things for companies to do as they move onto the Web is gauge the costs and benefits of advertising 5 on the Web. Many companies have developed new metrics to evaluate the number of desired outcomes their advertising yields. For 0 of click-throughs that companies obtain per example, instead of comparing the number dollar of advertising, they measure the number of new visitors to their site who buy 5 for the first time after arriving at the site by way of a click-through. They can then 1 calculate the advertising cost of acquiring one customer on the Web and compare that to how much it costs them to acquire one Bcustomer through traditional channels. U Effectiveness of Online Advertising After years of experimenting with a variety of online advertising formats, the effectiveness of online advertising remains difficult to measure. One major problem has been the lack of a single industry standard measuring service, such as the service that the Nielsen ratings provide for television broadcasting or the Audit Bureau of Circulations procedures Marketing on the Web Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. 178 provide for the print media. In 2004, a joint task force of the Interactive Advertising Bureau (IAB) and the Institute of Practitioners in Advertising (IPA) created a set of media measurement guidelines that all online advertisers can use to produce comparable ad view numbers. Although the task force guidelines have helped to establish measures of ad views, difficulties remain in assessing the effectiveness of online advertising because site visitors change their Web surfing behaviors and habits as they gain experience using the Web. For example, an experienced Web user is far less likely than a new Web user to click a banner ad. Declining click-through rates might not be a good indicator of the success of online advertising, however. Many companies are finding that online advertising can be an important element in a comprehensive marketing strategy that uses several different media to deliver messages to potential customers. Recent survey results show that more potential car purchasers would be influenced by an online ad than by a television ad. Very few people would buy a car based solely on information contained in an online ad, but online ads might prove to be an effective way of building brand recognition and conveying information about cars to potential buyers. You can learn more about current developments in online advertising effectiveness by visiting the AdAge.com, eMarketer, and Wsites. Online Publishers Association Web Most marketing analysts do Iagree that online advertising is much more effective if it is properly targeted. Online ads that reach site visitors who are looking for something Lmessage are much more successful than ads viewed by a specific that is related to the ad’s general population. Thus, market S segmentation is an important element in online advertising success. One useful marketing tool that uses market segmentation successfully is e-mail marketing, the subjectO of the next section. N E - M A I L M A R K E T, I N G Sociologists and cultural anthropologists have proclaimed e-mail to be one of the greatest tools for human communication to be developed in the 20th century. Because advertising J is a process of communication, it is easy to see that e-mail can be a very powerful A strategy. Many businesses would like to send e-mail element in any company’s advertising messages to their customers and potential customers to announce new products, new M product features, or sales on existing products. However, industry analysts have severely I criticized some companies for sending e-mail messages to customers or potential customers. Some companies have even faced legal action after sending out mass E e-mailings. Unsolicited Commercial E-Mail5(UCE, Spam) Spam, also known as unsolicited commercial e-mail (UCE) or bulk mail, is electronic 0 junk mail and can include solicitations, advertisements, or e-mail chain letters. The origin 5 of the term spam is generally believed to have come from a song performed by the British comedy troupe, Monty Python, about Hormel’s canned meat product, SPAM. In the song, 1 an increasing number of people join in repeating the song’s chorus: “Spam spam spam B spam, wonderful spam…” Just as in the song, spam, spam spam spam spam, lovely e-mail spam is a tiresome repetition U of meaningless text that eventually drowns out any other attempt at communication. Besides wasting people’s time and their computer disk space, spam can consume large amounts of Internet capacity. If one person sends a useless e-mail to a million people, that unsolicited mail consumes Internet resources for a few moments that would otherwise be available to other users. Once merely an annoyance, spam has become a major problem Chapter 4 Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. for companies. In addition to consuming bandwidth on company networks and space on e-mail servers, spam distracts employees who are trying to do their jobs and requires them to spend time deleting the unwanted messages. A considerable number of spam messages include content that can be offensive to recipients. Some employers worry that their employees might sue them, arguing that the offensive spam they receive while working contributes to a hostile work environment, which can be grounds for harassment allegations. Industry analysts estimate that spam costs businesses more than $30 billion per year in the direct costs of dealing with it and in lost productivity of employees who are subjected to it. You will learn about the legal issues surrounding spam in Chapter 7, and you will learn about the technical issues related to spam and some strategies for battling it in Chapter 8. Sending e-mail messages to Web site visitors who expressly request the e-mail messages is a completely different story. A key element in any e-mail marketing strategy is to obtain customers’ approvals before sending them any e-mail that includes a marketing or promotional message. By obtaining these approvals, as you will learn in the next section, companies can avoid being accused of engaging in spam. 179 W I maintain an effective dialog with their Many businesses are finding that they can customers by using automated e-mail communications. Sending one e-mail message L to a customer can cost less than 1 cent if the company already has the customer’s e-mail address. Purchasing the e-mail addressesS of people who ask to receive specific kinds of e-mail messages adds between a few cents Oand a dollar to the cost of each message sent. Another factor to consider is the conversion rate. The conversion rate of an advertising N respond to an ad or promotion. Conversion method is the percentage of recipients who rates on requested e-mail messages range, from 10 percent to more than 30 percent. These Permission Marketing are much higher than the click-through rates on banner ads, which are currently under .5 percent and decreasing. The practice of sending e-mail messages J to people who request information on a particular topic or about a specific product is called opt-in e-mail and is part of a A marketing strategy called permission marketing. Seth Godin, the founder of YoYoDyne and later the vice president for direct marketing at Yahoo!, developed this marketing M strategy and publicized it in a book he wrote with Don Peppers titled Permission I Marketing. Godin argues that, as the pace of modern life quickens, time becomes a E that traditional businesses use to valuable commodity. Most marketing efforts promote their products or services depend on potential customers having enough time to listen to sales pitches and pay attention to the best ones. As time becomes more 5 to hear and evaluate advertising and precious to everyone, people no longer wish promotional appeals for products and services in which they have no interest. 0 ConstantContact and Yesmail are two companies that offer permission-based e-mail and 5 related services. Thus, a marketing strategy that sends 1 specific information only to people who have indic...
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Running head: AFFILIATE MARKETING

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Affiliate marketing
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AFFILIATE MARKETING

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Introduction
Affiliate marketing is a performance based form of marketing where a business gives
rewards to its affiliates for each customer or visitor they bring to ...


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